Surveillance: Landlords Fight for NYC

finance bosses to speed return in safe city. And as I said to Anna Edwards in the simulcast a bit ago, I heard the same story out of the city of London. I think it was two or three weeks ago as well. To give us perspective on this is Anthony Malkin of Empire States Reality Trust. He's got a big fancy title. Other than that, what you need to know is he holds ordered five O one seventh Avenue at thirty seven one Grand Central Place, at the Grand Central Terminal two

fifty West fifty seventh at Broadway. These are tangible properties of his Empire State Reality Tony, what's the what's the level of panic right now about the empty Midtown that I observe? And I really don't think it's a. It's a matter of panic. I think it's time for people to get out of the Hampton's and get out of Aspen, and get out of the mountains and show up to work. The leaders who are very comfortable in their their their country homes need to lead. People want to be back

at work. The young people want to be back at work. It's a competitive advantage to those people who come back to work. It's maybe an elitist thing. I take your point on the fancy people are at the fancy properties and the people that work for them, do they want to go to the office as well or do they

want to be at home? You know, I think that the whole issue of work from home, the death of work from home, has been written Amazon, Facebook, smartest companies, biggest companies have stated very clearly they're expanding, and they're expanding in cities, are expanding in New York City. And the fact of the matter is that you cannot understand halloway validation what happens before the zoom after the zoom,

unless you're actually in the office. And I attended a board meeting the public company on his board, I sit in minny Apolais on Monday, and Tuesday last week. It's so critical to be there. Uh and and in person, you just don't get the world from the shoulders up and in the length of the zoom call, it doesn't work. What you can you can you can maintain and you can sustain, but you cannot build and you cannot grow.

But the reality is Tony and you and I know all the restaurants have frequent all your wonderful properties, those restaurants have to be open. Essentially, they're not. I mean, you can go down to Benoit on fifty fifth Street, I think, and they've got their wonderful cafe outside and do the French a faith thing Alan dukas, thank you. Guess what you can't go in the restaurant. How critical is it to link your opening of real estate to

their opening of restaurants. You know the fact is that at the Empire State Building, for instance, we have a lot of services, a lot of restaurants, a lot of different food vendors. They will deliver two people's desks, they'll deliver to their offices. People need to be there for people to have the justification to open their stores and open their doors and employ people and and it all

starts at the top. That's where it starts. And if people are going to sit there, comfortable in there and looking in there, I'm tired of zooms with people who are in their beach homes getting delivered iced tea by somebody who's off camera, you know, get to your desk. I take I take your message on board, Anthony. I'm not in New York. I'm not in the Hampton's Lam in London, but I am in my house. And parts of that is to do with and keeping occupancy of

office space down. It might be possible for some people to go back to offices, but do you accept that we're going to be in a sort of new normal situation in some of these big world cities where not everybody can go back at the same time. Not yet. I think we've got four phases lockdown, pre therapy, vaccine, post therapy vaccine, and then clean up and and replanting the field, if you will. We're definitely in that phase two right now, and we've got a ways to go

till we get to phase three. So there absolutely are quote new temporary normals unquote, and we have to adjust and address that. That said, if people will not lead, people will not follow. And what really is interesting is the young people today, ranging from their junior year in high school to two years out of college, they will follow those people who lead, and those people who sit at home will remain at a competitive disadvantage from those

people who show up and work. So the bottom line is, hey, look you need indoor environmental quality. It has been a major factor of all of our work in the over one billion dollars we've spent modernizing our PORTFOLI you in New York City, making an energy efficient MERV third team filters, ventilation, ion transfer, air purification. We have a benefit in our buildings the fact that they are older, so they didn't used to have centralized air conditioning systems. Consequently, fan rooms

are located per floor. You're not recirculating the air for the entire building when you cooler heat and individual floor. That said, you can make these changes. You can make these adjustments, and people need to adjust and adapt. That's true. That doesn't mean that you don't try and you don't start. Those people who do are going to win. So, Anthony, and what do you think people are afraid of? The

managers you say aren't coming back. Are they afraid of the virus, or they're afraid of the legal system perhaps and the legal implications of getting back bringing people back if it isn't entirely safe. You know, you make a really good point. This whole issue of liability capping is so critical. You cannot take a look at let's say, what happened in New York City and compared to what happened in Miami. Miami happened several months after what happened

in New York City. The lessons learned in New York City have helped everyone else in the world. Nobody's fault that these things occurred when we didn't know what was going on. Now that you do know what's going on, however, you have to take prudent steps, wear a mask, have your distancing, have your cleaning, do the appropriate measures. That said, it is a matter where you can operate at the occupancy which is allowable. We're operating at the Empire State

Building Observatory right now. We've got the same ventilation they're depending upon the density that we planned for visitors there. The fresh air comes into that space three to twenty two times an hour, very quickly. Or Tony Malco and last question, what portion of rents are not being paid. So h in July we reported collection lower in retail than in office. Very good, Tony Malcoln, thank you so much, just really really love have you, and we'll do this

again soon with the Empire State Reality Trust. Mr Melkin, of course part of New York City. I really can't say enough about the Bloomberg article right now. We need a clinic any equity market. We turn to Laurie Calvacina of RBC Capital Markets, airhead of all of US equity strategy as well. Laurie, what will you write about? What will you frame from Monday morning? So look, I think

it's a quiet week. I think that there hasn't been a ton of news, but the news that has come out has moved markets, and I think what my takeaway for the week so far is that there's still an undercurrent of nervousness. I mean, arguably the Fed minutes really shouldn't have rattled markets, and it's not like they rattled them in a major way, but they did reveal that there's still some underlying concern about this fork in the road that the US economy seems to be at. Which

way are we going? Are we going? To start recovering again after a bit of a plateau over the summer, or are we going to take another leg down? And I think markets are still concerned about that. We have seen a reaffirmation this week, Lorie, of digital dominance. We see it in any number of companies. We all know them, Home Depot, Walmart, etcetera. Apple with the two trillion dollar valuation as well. How do you do a strategy in

a time of big box digital dominance. So our call has been not to chase all of the little individual moves, and we think that we're going to see a lot of volatility in terms of leadership at the style level, at the sector level. UM. We're continuing to tell people to stay balanced between things like growth and value. We're neutral on the tech and T I M T space. We fully understand what's driving it. And as well as those big buck retailers that the work from home UM,

you know sort of quarantine type names. We get what's going on there. But we think we're going to see a lot of volatility, that this is going to be a long, uneven recovery and you just need to buy the best in the cyclical camp, the defensive camp, and the longer term growth camp and not try to chase all of these little individual moves because we think you'll

get whiplash. Wise, were as lowering good morning. Why do you not have a moll positive view on small camps If you think they're cheap, if you think they could have the potential to capt up with some of those big box moves, that's only talk me about that. And if they're underowned and they and they like recoveries, why not go more aggressively into the smaller camp. End. So our call on small cap is very nuancedpace on your

time horizon. And you know, I think everybody on the street likes to think of themselves as a long term investor, but at the end of the day, a lot of people aren't and can't really afford to be a lot of people live in that kind of six months, next few quarters, one year time horizon. If you're in that six to twelve month time horizon, we think you should stay neutral. Um, we think that the small caps are

giving you a historic valuation opportunity. That means said, we do also think that they're functioning the way that they typically function as cyclical expressions of confidence in the market. So as we you know, as we think one of the reasons, frankly, they haven't broken out in a bigger way is that there are still all these doubts about

the near term trajectory of the economy. But if you really are, in your heart of hearts, a three to five year investor, and you can ignore the noise of the next year, no, we will come out of this. We know that valuations are back to tech bubble extremes, and what I mean by that is that small caps

are historically cheap relative to large caps. So we think you're going to be in a good place in this trade on a three to five year view, but over the next six to twelve months, our confidence level is a bit lower, and so we want to be intellectually honest about that. Okay, so you'd be a bit more cautious. They're picking up on something you said earlier about the fork in the road, and and it makes me wonder whether actually what we're dealing with in the US is many, many, many,

many different forks. Because of the size of the economy and the way that the coronavirus regulations are being implemented rightly in a very localized fashion, and you can apply

this to Europe to some extent. If we don't see big lockdowns, big statewide or big country wide lockdowns, if they are more nuanced, more targeted, that's going to make the job of of working out which fork in the road is going to be taken here for the for the big picture economy, that's going to make that really difficult.

I think that's true. And you know, we're all watching this alternative high frequency economic data, things like the open table, restaurant book games, flying trends, public transit activity, that sort of stuff. And one of the things that we do on my team is an addition to looking at it at say US versus Europe, where we can, we try

to look at the different regions around the country. Within the US, and we noticed over the summer, as the case counts were rising in Texas and Arizona and Florida, you were seeing different reactions and consumer confidence, you were seeing different reactions in mobility and engagement. UM that the trends were simply not uniform across region different regions of the country. Oftentimes the you, the Northeast was looking a bit better than some of these other hotspots. UM And

I think that makes it very very difficult. UM. But at the end of the day, Um, what we're seeing at the national level is the data has generally plateaued. A few things are starting to perk up a little bit, but a lot of stuff has stayed stalled. And that's telling me this economy hasn't decided which way it wants to head yet. Will we see M and A here in the coming quarters simply because of a dearth of revenue growth? I think you'll get M and A down

the road. Um. You know, one of the things our industrial analyst Dean dre has talked about is just how strong the balance sheets are of his companies, and he thinks they'll have a lot of dry powdered down the road once confidence returns to go out and do some deals. UM. And I think that's probably a pretty true statement of

the broader market. UM. But I'll tell you tom As I went through the transcripts of this last reporting season, one thing that really struck me was that companies, when they were giving guidance, we're giving you a quarter's worth, not generally anything more than that. Um. And also, you know, there are a lot of companies that said, hey, things are better in June and July, but still had a

cautious tone about the longer term outlook. So that's telling me they're going to keep that dry, that powder dry for a little bit longer. I mean, I'm glad you mentioned Dean Dre. He's just wonderful on Honeywell and on the other great industrials and what i'd almost call multinational industrials as well. I know you can't talk individual stocks, but what does Mr Dre tell you about the confidence

of these executives? You know what I what I think we've heard on the industrial side is that the trade war, you know it really was was was a great sort of test run for this not intentionally, obviously nobody saw this coming. But these companies are really focused on cost cutting, They're really focused on margins, they're trying to defend the dividends. They're really in a good place to weather this pandemic.

And that's really, you know, what I've seen in my work, That's also what I've been hearing from Dean and some of our other industrial analysts. And I'm actually overweight the industrial sector while I have, you know, an expectation that this market is going to give back some of the games in the final few months of the year, and I don't want to be holy encyclicals right now. Industrials is the one spot in cyclicals that I'm really comfortable

leaning into at the sector level. Laurie Calvacina, thank you so much. With RBC Capital Markets, there's a really great indecision about where we're heading on inflation and particularly on the general economy. Kathy Jones studies this. She has a great joy of working with Lizzie Sanders at Charles Schwab. It's arguably the best flow team on the street. Kathy, question I'd ask liz Anne, let me ask you to you as well. Schwab sees the flow of money nobody.

What are you seeing right now among Schwab clients? Are they in the markets? Yeah? Absolutely, Um. I think our clients have learned the lesson of hanging in there after the ups and downs of the markets. Uh. You know, there's there's a lot of different clients, so each has a different kind of view, but in general, our clients have stayed in. We didn't see a big exodus when the economy declined, and we've actually seen clients come back and uh and increase their positions as the markets improved.

What is your general yield prediction given the worries this morning over future aggregate demand. Yeah, so we've been saying since the beginning of the year that we thought that well actually since the pandemic hit, that we thought the tenure yield would stay in a fifty two five hundred

basis point range this year. We're looking for a continued improvement in the economy, but the pace will probably slow down now that we've had this as quick rebound, and we think that that puts a lid on the upper end of yields. But with the improvement in the economy, even to a small extent, or even if we continue to kind of roll along here, should hold tenure yields around fifty basis points. And of course the short end is completely anchored by the fed um near zero, so

there's not going to be a lot of play there. Kathy, good to speak to you Anna in London. Let me go into the minutes. We're just getting through from the ECB, just dropping across the bloomberg right now. They talk about positive market developments not being fully backed by data. Let's remember this is for July. This is the minutes of

the fift to the sixteenth of July. But something catches my eye at Kathy, and that is what they're saying around the PEP, and that's the plan that the ECB put in place, of course, to to buy up assets. Some said in the minutes that the pet envelope should be a ceiling, not a target, and I wonder if that will lead some to conclude that maybe the ECB isn't about to increase the amount of money it puts into the PEP in the future. What are you expecting to see. Um, I think that that's still going to

be somewhat flexible. You know, in the ECB you have different different factions there, and I think probably that statement, off the top of my head sounds like they're trying to satisfy different different factions within the e c B. But I do think that they're still under Christie regard this, you know, the continuation of the draggy whatever it takes philosophy.

So if they have to increase, they will increase. But in the short run that probably sends a little bit of a signal that will firm up the Euro if people believe there is a ceiling on it. Yeah. They're also saying that they expect more clarity about inflation and the outlook for that in September. They'll have plenty more data to play with in September when it comes to that.

The global conversation that seems to be going on around inflation, Kathy, if we can, if we can talk globally about inflation. I know these things are much more nuanced and geographical, but in general terms, we spent many years with central banks struggling to get inflation ray to meet their targets in developed markets. This is going to be even more difficult now, isn't it, with unemployment rates as high as they are, or as high as they're going to be.

So where do you see the inflation and narrative gemming? Yeah, I think it's gonna be a real struggle. We've got several years here before we close those output gaps, we get unemployment rates down, we get wages up, and enough that you have, you know, enough money in people's pockets to fuel some inflation. It's going to take a couple of years. But I'm not in the doom and gloom sort of a deflation camp. I think the abundant liquidity and the efforts of the central banks will mean that

we will gradually see a little bit better inflation. But it's gonna take time because we doubled into unemployment and on all of the damage that's been done to the major developed economies economies around the world. It's going to take some time. The kitty, you know, we just had launched time. I'm Bloomberg, folks. This is an incredibly important story and I'll get it out shoot Nagina Natalie Wong on the real estate and the emptiness of our big cities.

The article focuses on New York City, but in Edwards. To be honest, I saw a like article on London a couple of weeks ago as well. Kathy Jones to Schwab, just assume that there will be a lower g d P number and that the level we get back to could even be sub two real g d P. No, I don't think we're assuming that at all. Um. You know, we do know that there are structural changes taking place. So a commercial real estate is certainly an area where a lot of questions as to how that's going to evolve.

But I really take on more optimistic view of things. If you look at how anxious people are to get back to their quote unquote normal lives. What you see is they're willing to risk their health and well being in order to just go to a bar or have a party or go to the gym. Um, I'm actually fairly optimistic about the resilience of the major economies once

once we get further down the road. Obviously a vaccine would be a huge game changer, but I don't assume that we necessarily go to a lower level of economic activity below two percent going forward. I think we can get back to that two to two and a half percent area. I don't know that we can go be a pond differ. Well, that's yield up at some point, that's yield up priced down. How do you protect on

price erosion on fixed income? Well, right now, we're keeping duration a little bit short of average or whatever the benchmark is. So if you take the egg the benchmark, it's around six or seven. Right now, we'd keep it a little bit shorter because the risk reward at the long end just isn't that great unless you have a very deflationary outlook, which we don't have. So we're keeping duration a little bit short. Um, we like high quality credit,

you know, I investment grade credit. You can actually take some duration there and get a bit more yield, and you can venture out into some of the riskier segments of them market if you have the risk appetite for a little bit um and get some duration plus yield there. Yeah. What is appetite like for some of the new issuance we've seen coming through Kathy from the corporate world in

in the US, and I'm thinking of investment grade. I was looking at a chant that showed issue instead of record for the year, and that was on Monday, So midway through August, we've already reached a full year record on on corporate issues. Is there still the appetite and the market still soaked this up? Oh? I think so. Um, if you look at the issue that Apple did a little while ago. Um, I think investment grade will find very strong appetite. You know, have the support programs from

the FED. We know the FED has been buying some investment grade. You can't get a lot of yield anywhere, and um, when you're up in credit quality, there's just tremendous demand for some sort of yield out there. And I g definitely satisfies that. Kathy, thank you so much, Kathy Jones and rush So I greatly appreciated. What we know for certain is that the gentleman from Delaware has

to go out and find disaffected Republicans. That's happened before, including the disaffected Republican Dean family of years ago, where Howard Dean wandered from GOP over to the Democratic Party and had a sterling career in Vermont and wandered out as a presidential candidate just a few years ago. We're thrilled that Howard Dean could join us this morning. The former d n C chair, Howard the vice president, has to go out and find disaffected Republicans. How does he

do that? Actually he doesn't. He's going to do that, but he doesn't. All he has to do is get a bigger turn out than we had in two thousand sixteen. And I think they're well on their way to doing that. But this is a convention that is aimed at Republicans. You just want to see honesty back in our government. Uh. And that's why you had two or three pretty big Republican figures, Guy John Kasey, Cindy McCain, and Colin Powell

basically giving permission for disaffected Republicans to vote for Joe Biden. Uh. This is a good job that I don't think conventions are ever going to go back to the way they work. This convention has been very effective with this format, and it's obviously much less expensive and much easier logistically. What happens when these two odd conventions are over, how do the Democrats move forward to get the vote out and

to get those independence and disaffected Republicans. Well, that's why you're seeing so much hassle about the male system and Trump's attempt to disrupt the mail. Uh, it's clearly going to be mail ballots. In Vermont, we had the largest turnout in the history of the primary. The primary vote was up something like over the previous record of primary voters. That's just unheard of. Uh. And I think you know,

voting by mail is convenient, people like it. Five states, including Utah and Oregon, both at the opposite ends of the political polls, have been doing this for a while and it's very successful in people like it regardless of their party. So that's going to be a critical key. Has have the post office run and function properly and

that's a big get out of the vote tool. How is it easier to vote by posts than vote in person as far, well, it's much easier in the COVID epidemic where you have to worry about getting you know, pretty serious medical problem. And uh and it's always been a problem, and more so recently voting machines. The voting machine technology really doesn't work in this country because they've adopted a system that you can't really recount it. You just keep staring at the numbers. That's that's the recount.

Now there's some states that don't use that technology that you can actually see ballots that get counted by the machine, which is the right way to go. So voting in this country has been a big problem since about two thousand with a very controversial Bush versus Score court case, and we need to do much better there. What is the message that the Democrats should do not to make sure that people just turn out and vote. How do

you energize people? It's pretty well, you know, Trump is the interget I mean most most inner interim elections when a president's running for re election is about as a referendum on the president. So Trump is our best weapon Trump is incredibly destructive. He's certainly the most dishonest president we've ever had, and going back over the years, that's quite a statement to make. So people are first they're gonna go out and vote against Trump. Second of all,

they do want decency. One of the great things about Biden's candidacy, even though he's seventy eight years old and all this stuff, is he's a decent guy and he does listen to people. He has empathy, which Trump completely lacked. So there's gonna be a huge contrast between the personal styles. And I know we all talked about issues and what people are gonna do with the real issue is always does this person care about people like me and Joe

Biden does and Trump doesn't. Where do you sit Dr Dean with the idea of shocking the nation in October into the third week of October by starting to announce cabinet members. If this is a president Biden who has to delegate authority for whatever the reasons, can he like tear up the political playbook and say so and so will be my Secretary State, so and so will be my Secretary Treasury. That's controversial. I thought about that when

I was running. The reason people don't do it, I think is because, um, there's some concern that if you do that, it appears that you're trading your your cabinet appointment for a for support. And you know, I've I've always heard this. We thought about doing it ourselves. That was an explanation I got from a lawyer. Uh So that I think may have something to do with the fact that candidates just don't do that. What is the best process for the vice president when he debates President Trump?

We always saw the debate of of Trump Clinton. How should Biden debate the sitting president? He just needs to be himself. Trump will get out there and say all kinds of Atlantish things about conspiracy theories and drinking bleach and god knows what else, and Biden testing himself for whatever Biden's position on the political spectrum, and he's probably more conservative than I am. Um, he's just a good guy and just people would like to have a normal

president again after this four years of reality television. So he just has to be himself. And if he makes a flub or says something you know that's uh, you know, that's out of line and out of whack. He's been doing that for thirty five years. He's just just makes him more human. But Howardina, I also keep on reading and that actually that there's a lot more googling on conspiracy theories. I think we had a story, um you know, on Q and On and the fact that President Trump

didn't say it was nonsense. Does it really you know, is it really you know taking ground in the US? Are a lot more people, um, you know, believing in conspiracy theories or is it just still a very small part. Well, it's a small part, but it's a lot more people than it was. Because Trump floats these conspiracy theories and then Q and on, look, he has he has energized that what I would call the crackpot, right, um and and it's a problem. And because people do believe this

kind of stuff. I mean we did, we seriously did have two Americans who died because they drank a swimming pool cleaner because Trump apparently recommended that that was how you're gonna get rid of coronavirus. I mean, really, you know, I hate to say that, I think I don't hate to say it's true. I think Trump is crazy. I really do think he's mentally unbalanced, and he's been mentally imbalanced most of his life. Dr Dean, we didn't have you on to talk politics. We need to get some

medicine out of the way here. Right now. We have a new solution for this virus. It is a derivative called oleander her oleand rin whatever it is. And the President is not endorsed it, but said quote will look at it. Can you speak to our global audience about the pathology and the the almost the physiology of these these easy solutions on a virus pathology? Isn't there are no easy solution. There are plenty of fantastic sciences scientists

in many countries around the globe. There's a hundred potential vaccines, several of which are probably gonna work. I think the most, uh most further furthest along is astro Zeneca and Oxford University in the UK. That appears to be far advancing because the drug company is going to do an unusual kind of test called the Challenge tests, which will even move that and they're also already making doses on the com That is uh to to take the risk of

making something that's not gonna work, I think it will work. Uh. It certainly isn't going to be there by the election, but you know it's possible it will be there by January, and that will make a difference. It won't make a difference right away because there's seven billion people in the world and at least sixty or seventy of them have to be vaccinated in order to get hurt immunity. But

these cracked by theories people should not. I mean, the President the United States is just keep his mouth chef that that's clinically impossible for US. Dr Dean, thank you so much, of course, a former DNC chair. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keene before the podcast. You can always catch us worldwide. I'm Bloomberg Radio.